France granted leeway on budget deficit

The finance ministers of the eurozone have agreed on deadlines for eight member states to bring their budget deficits back into line with EU law.

Austria, Germany, Slovakia, Slovenia, the Netherlands and Portugal have been given until 2013 to bring their deficits within 3% of gross domestic product, the ceiling set by the EU’s stability and growth pact. Belgium and Italy have been given until 2012.

The countries’ performance in meeting the targets will be monitored by the European Commission and other governments, under the excessive deficit procedure (EDPs).

The decisions taken by the Eurogroup – the meeting of eurozone finance ministers – on Tuesday night (1 December) will be rubber-stamped tomorrow at a meeting of all 27 EU finance ministers. The decision brings to 20 the number of member states subject to EDPs.

Deadlines pushed back

The Eurogroup agreed that France, Spain and Ireland should be given an extra year to bring their deficits back below 3%. All three countries were placed under EDPs earlier this year. The new deadline for France and Spain is 2013, while Ireland’s deadline has been moved to 2014.

Christine Lagarde, France’s finance minister, said last month that a 2013 deadline was “really not realistic”. France and the Commission reached a compromise, however, in which the annual effort that the French government should make to meet its deadline has been reduced.

The Commission had proposed that France should consolidate its budget at 1.25% of GDP per year. The French government, however, successfully argued that this was higher than needed to meet the target. Joaquín Almunia said an agreement had been reached that consolidation should be “above 1%”.

French officials have said that there is an understanding with the Commission that meeting the deadline is contingent on strong economic growth.

Greece’s finances

Finance ministers also discussed the deterioration in Greece’s public finances. Greece is expected to have a budget deficit of more than12% in 2009.

Jean-Claude Juncker, the Luxembourg prime minister who is the chairman of Eurogroup, described the Greek situation as “quite worrying”. He said the Greek government’s 2010 budget, which would cut the deficit to 9.1% next year, was a “first step in the right direction…but this step has to be followed by others”. He said that Greece would present a deficit reduction plan to ministers in January, and that finance ministers would vote in February on a new deadline for the country to bring its deficit back within 3%. Greece’s current deadline is 2010.

Responding to market uncertainty about Greece, Juncker said that “Greece is not and will not be in a state of bankruptcy”. “I am convinced the Greek government and Greek parliament will take all measures necessary [to prevent this],” he said.

Juncker said that finance ministers would take decisions in January on how to adapt their work in light of the entry into force of the Lisbon treaty. The Eurogroup is granted a formal role and decision-making powers by the treaty.

Juncker said that he expected the decisions in January would include re-appointing him as president for a term running until June 2012. His existing mandate is due to expire at the end of 2010.